nep-reg New Economics Papers
on Regulation
Issue of 2022‒10‒10
twenty papers chosen by
Christopher Decker
Oxford University

  1. Surging Energy Prices in Europe in the Aftermath of the War: How to Support the Vulnerable and Speed up the Transition Away from Fossil Fuels By Oya Celasun; Ms. Aiko Mineshima; Mr. Nicolas Arregui; Victor Mylonas; Mr. Anil Ari; Iulia Teodoru; Mr. Simon Black; Karlygash Zhunussova; Ms. Dora M Iakova; Ian W.H. Parry
  2. Prices versus Quantities with Morally Concerned Consumers By Schmidt, Klaus M.; Herweg, Fabian
  3. Measuring the effects of power system reform in Jiangsu province, China from the perspective of Social Cost Benefit Analysis By Li, T.; Gao, C.; Pollitt, M.; Chen, T.; Ming H.
  4. On dividends and market valuations of Australia’s listed electricity utilities: regulated vs. merchant By Simshauser, P.
  5. Defining gas price limits and gas saving targets for a large-scale gas supply interruption By Neuhoff, K.
  6. Tendencias en materia de digitalización del sector eléctrico By Messina, Diego; Contreras Lisperguer, Rubén; Salgado, René
  7. A potential mechanism of gas supply-security cooperation based on a game-theoretic model By D\'avid Csercsik
  8. Platform Governance in the Sharing Economy: Curation, Self-Regulation and Public Policy By Noriyuki Doi
  9. Cooperation, Competition, and Welfare in a Matching Market By Bester, Helmut; Sákovics, József
  10. Environmental Economics, Regulation, and Innovation By Mads Greaker; David Popp
  11. Platform Liability and Innovation By Jeon, Doh-Shin; Lefouili, Yassine; Madio, Leonardo
  12. Price versus Commitment: Managing the Demand for Off-peak Train Tickets in a Field Experiment By Hintermann, Beat; Thommen, Christoph
  13. TSO-DSO Coordination for the Procurement of Balancing and Congestion Management Services: Assessment of a meshed-to-meshed topology By Leandro Lind; Rafael Cossent; Pablo Frias
  14. Credit Card Profitability By Robert M. Adams; Vitaly M. Bord; Bradley Katcher
  15. Oligopoly with common resource: A Lindahl-Cournot approach By Jacques Thépot
  16. All-Pay Competition with Captive Consumers By Foucart, Renaud; Friedrichsen, Jana
  17. The Human Perils of Scaling Smart Technologies: Evidence from Field Experiments By Alec Brandon; Christopher Clapp; John List; Robert Metcalfe; Michael Price
  18. Competition and Innovation: The Breakup of IG Farben By Pöge, Felix
  19. India’s State-Owned Enterprises By Ms. Elif C Arbatli Saxegaard; Ruchir Agarwal; Ms. Lesley Fisher; Xuehui Han
  20. Potential Uses of Hydrogen in California’s Clean Energy Transition By Fulton, Lewis PhD

  1. By: Oya Celasun; Ms. Aiko Mineshima; Mr. Nicolas Arregui; Victor Mylonas; Mr. Anil Ari; Iulia Teodoru; Mr. Simon Black; Karlygash Zhunussova; Ms. Dora M Iakova; Ian W.H. Parry
    Abstract: We estimate that the recent surge in international fossil fuel prices will raise European households’ cost of living in 2022 by close to 7 percent of consumption on average. Household burdens vary significantly across and within countries, but in most cases they are regressive. Policymakers have mostly responded to the shock with broad-based price-suppressing measures, including subsidies, tax reductions, and price controls. Going forward, the policy emphasis should shift rapidly towards allowing price signals to operate more freely and providing income relief to the vulnerable. The surge in energy prices will encourage energy conservation and investments in renewable energy, but the manyfold rise in natural gas prices could lead to a persistent switch towards coal. To ensure steady progress towards carbon emissions reduction goals, authorities could use the opportunity to strengthen carbon pricing when global fossil fuel prices decline in the future. Non-price incentives for investments in energy efficiency and renewable energy should also be enhanced, as envisaged in the RePowerEU plan.
    Keywords: energy prices; price pass-through; household incidence; distributional analysis; social programs; carbon pricing; climate mitigation; price signal; natural gas price; fossil fuel price; price decomposition; Fuel prices; Natural gas sector; Inflation; Non-renewable resources; Europe; Global; electricity price; Energy conservation
    Date: 2022–07–29
  2. By: Schmidt, Klaus M. (LMU Munich); Herweg, Fabian (University of Bayreuth)
    Abstract: It is widely believed that an environmental tax (price regulation) and cap-and-trade (quantity regulation) are equally e
    Keywords: emissions trading; carbon tax; climate change; prices versus quantities; behavioral industrial organization;
    JEL: D62 H23 Q52 Q58
    Date: 2021–01–19
  3. By: Li, T.; Gao, C.; Pollitt, M.; Chen, T.; Ming H.
    Abstract: The paper uses a social cost benefit analysis (SCBA) approach to measure the effects of the power system reform starting from 2015 in Jiangsu province, China. We review the background of Jiangsu power system and summarize the implemented policies since the publication of “Document #9†. Then we pick the average industrial and commercial retail price and analyse the sources of price reductions. We show that the nominal industrial and commercial price fell by 21.3% between January 2012 and May 2021. We then analyse the likely overall welfare change facing industrial and commercial customers using SCBA and conclude that there is a permanent gain equivalent to 9.1% lower prices per year mainly because of the reform. This figure is a significantly more positive consumer gain than that calculated in previous SCBAs of electricity reform in other countries.
    Keywords: Power system reform (PSR), social cost benefit analysis (SCBA), electricity market, industrial and commercial electricity price
    JEL: L94
    Date: 2022–09–13
  4. By: Simshauser, P.
    Abstract: Restructuring of Australia’s electricity supply industry during the 1990s and the string of M&A events that followed led to two clear lines of business emerging, i). regulated utilities (i.e. poles & wires), and ii). merchant utilities (i.e. competitive generation and retail). There are dozens of utility businesses in Australia but only four are listed on the Australian Stock Exchange – two regulated and two merchant. Operating in parallel for most of the past two decades, the two utility segments followed very different earnings trajectories over recent years. Unlike merchant firms, regulated utilities avoided the large swings in dividends which characterised merchant firms as Australia’s climate change policy conditions began to tighten. In turn, the comparative stability of regulated utility dividends in the context of a low interest rate environment led to soaring valuations, culminating in simultaneous takeover events. Co-incident delisting of the regulated utilities marks the end of our ability to observe continuous market valuations, and real capital market reactions to changes in network regulation. In this article, the dividend policy and market valuations of the listed regulated utilities are analysed in the context of a falling interest rate environment. Results are consistent with Grullon & Michaely’s lifecycle theory of dividend policy – it would seem the stability provided by Australia’s regulatory framework made the network utilities, rightly or wrongly, a proxy for bond investors in a falling-rate environment. For merchant utilities, the pattern of dividends and earnings are consistent with information content theory. But their valuations have been adversely impacted by a tightening of Australian climate change policies –ironically, this also being the likely trigger of regulated utility takeover events.
    Keywords: Electricity, regulated utilities, dividend policy.
    JEL: D25 D80 G32 L51 Q41
    Date: 2022–09–13
  5. By: Neuhoff, K.
    Abstract: Should deliveries of Russian gas by pipeline be interrupted for an extended period of time, then gas prices could explode to up to several hundred Euros per MWh due to scarcity of supply. This risk is already reflected in future and spot gas prices and has caused much of the current extremely high gas price levels and volatility. Any additional price increase after a potential large-scale gas supply interruption would likely trigger even more government interventions in EU’s energy markets, with the objective to limit costs for households and other consumers. To avoid such ad-hoc measures, the EU Commission has proposed in the REPowerEU communication to agree already now, ahead of any potential large-scale interruption, on a coordinated European response to a large-scale gas supply interruption. We explore how the proposed measures, which include binding national gas saving targets and limits to the gas price in the case of large-scale gas supply interruptions, would impact supply and demand after an interruption. We also assess how the level of the price limit would impact the supply and demand balance after an interruption and the price formation prior to it.
    Keywords: Price cap, Security of Supply, Gas saving, Consumer welfare
    JEL: D30 D47 D61 L95
    Date: 2022–09–13
  6. By: Messina, Diego; Contreras Lisperguer, Rubén; Salgado, René
    Abstract: En el presente documento se analiza el tema de la digitalización en el sector eléctrico, su relevancia para las economías y su presencia en países seleccionados de la región. También se exploran las principales tendencias en la Unión Europea y los Estados Unidos, junto con las tecnologías de punta que se están aplicando en el mercado eléctrico. Además, se presentan ejemplos de empresas exitosas que ofrecen soluciones basadas en tecnologías digitales para los recursos energéticos distribuidos, la electromovilidad y los consumidores.
    Date: 2022–09–01
  7. By: D\'avid Csercsik
    Abstract: The escalating gas-supply crisis in the EU calls for immediate political and regulatory actions to improve the energy security. Currently, all member states are aiming to fill their reservoirs independently, while it is not clear how solidarity will or even could be put into practice in the future, i.e. how the accumulated reserves of one or more members may be potentially redistributed to help others in need. In this paper we aim to formalize a simple game-theoretic model in order to capture the basic features of the problem, considering the related uncertainty of the future conditions related to reservoir levels and possible transmission bottlenecks as well. We propose a mechanism for supply-security related cooperation, which is based on voluntary participation, and may contribute to the more efficient utilization of storage capacities if its principles may be later implemented. We demonstrate the operation of the proposed framework on a simple example and show that under the assumption of risk-averse participants, the concept exhibits potential.
    Date: 2022–09
  8. By: Noriyuki Doi (Emeritus Professor and Visiting Researcher at Innovation System Research Center, Kwansei Gakuin University)
    Abstract: The rise of the sharing economy is affecting many aspects such as consumption pattern of goods and services, existing business fields and labor markets. The business has an influence on competition and public policies in the field and related industries as well. In particular, a platform’s network management, called as platform curation, is emphasized as a private regulation or self-regulation. It plays a key role in the sharing business, and suggests new and challenging perspectives, opportunities and policy issues. This paper focuses on curation, and suggests its major implications for research and public policy.
    Keywords: sharing economy, market failure, curation, self-regulation, co-regulation
    JEL: L41 L42 L43
    Date: 2022–09
  9. By: Bester, Helmut (HU Berlin and FU Berlin); Sákovics, József (University of the Balearic Islands and University of Edinburgh)
    Abstract: We investigate the welfare effect of increasing competition in an anonymous two-sided matching market, where matched pairs play an infinitely repeated Prisoner’s Dilemma. Higher matching efficiency is usually considered detrimental as it creates stronger incentives for defection. We point out, however, that a reduction in matching frictions also increases welfare because more agents find themselves in a cooperative relationship. We characterize the conditions for which increasing competition increases overall welfare. In particular, this is always the case when the incentives for defection are high.
    Keywords: cooperation; prisoner's dilemma; competition; welfare; matching; trust building;
    JEL: C72 C73 C78
    Date: 2022–07–21
  10. By: Mads Greaker; David Popp
    Abstract: This paper provides a primer on the economics of environmental innovation. Our intention is not to write a pure review paper, but to also provide an up-to-date textbook treatment on the issue. Thus, we start by defining the marginal costs of both emissions and of emissions abatement. We then analyze theoretically how innovation may affect marginal abatement costs. We also cover the different modelling choices with respect to how the innovation process is represented mathematically and how different environmental policy measures could affect environmental innovation. Our theoretical propositions are all illustrated with examples from the empirical literature. A special emphasis is placed on the recent literature on directed technical change and the potential impact of government intervention in the research and development choices of private firms.
    JEL: Q55 Q58
    Date: 2022–09
  11. By: Jeon, Doh-Shin; Lefouili, Yassine; Madio, Leonardo
    Abstract: We study a platform’s incentives to delist IP-infringing products and the effects of holding the platform liable for the presence of such products on innovation and consumer welfare. For a given number of buyers on the platform, platform liability increases innovation by reducing the competitive pressure that innovative products face from IP-infringing products. However, platform liability can have unintended consequences, which can overturn this intended effect on innovation. Moreover, there can be a misalignment of interests between innovators and buyers as platform liability reduces consumer surplus for a given number of innovators. We also analyze how different types of cross-group network effects affect the impact of platform liability on innovation and consumer welfare.
    Keywords: Platform, Liability, Intellectual Property, Innovation.
    JEL: K40 K42 K13 L13 L86
    Date: 2022–09–19
  12. By: Hintermann, Beat (University of Basel); Thommen, Christoph
    Abstract: Using data from a field experiment, we provide estimates for the own-price elasticity of train travel in Switzerland. Our estimates are based on exogenous changes to the level of discounts for long-distance trains and thus avoid the usual endogeneity problem between demand-dependent discounts. Besides the price, we also vary the length of the pre-sale period during the experiment, which allows us to recover the relative effectiveness of pricing and timing measures. We compute own-price elasticities of around -0.7. Extending the pre-sale deadline by one hour leads to an increase in the pre-sale of discount tickets by 2.1%, which is equivalent to a price decrease by 3.1%. Reducing the price by 10% causes customers to purchase the discount ticket 7 hours earlier. Our results help design measures for peak-shifting in transport at least societal cost.
    Keywords: Field Experiments, Public Transport Systems, Train, Dynamic Pricing, Switzerland
    JEL: L92 R41 L11 C93
    Date: 2022–07–15
  13. By: Leandro Lind; Rafael Cossent; Pablo Frias
    Abstract: This paper proposes a comprehensive model for different Coordination Schemes (CSs) for Transmission (TSO) and Distribution System Operators (DSO) in the context of distributed flexibility procurement for balancing and congestion management. The model proposed focuses on the coordination between the EHV (TSO) and the HV (DSO) levels, exploring the meshed-to-meshed topology, including multiple TSO-DSO interface substations. The model is then applied to a realistic case study in which the Swedish power system is modeled for one year, considering a representation of the transmission grid together with the subtransmission grid of Uppsala city. The base case scenario is then subject to different scalability and replication scenarios. The paper corroborates the finding that the Common CS leads to the least overall cost of flexibility procurement. Moreover, it shows the effectiveness of the Local Flexibility Market (LFM) for the DSO in the Swedish context in reducing potential penalties in a Multi-level CS.
    Date: 2022–09
  14. By: Robert M. Adams; Vitaly M. Bord; Bradley Katcher
    Abstract: Credit cards are one of the most ubiquitous consumer financial products in the United States, with more than 75 percent of households owning at least one general purpose credit card in 2019. According to the G.19 Consumer Credit Statistical release, revolving consumer credit, which mainly consists of credit cards and related plans, stood at over one trillion dollars at the end of 2021.
    Date: 2022–09–09
  15. By: Jacques Thépot (LaRGE Research Center, Université de Strasbourg)
    Abstract: This paper is motivated by two correlated trends observed in the digital economy: (i) the increasing need for common infrastructures providing data and facilities (ii) the monopolization of key industries. We develop a Cournot oligopoly model where a public good is used as common resource of firms with heterogeneous productivities. The public good is provided by a public agency charging Lindahl prices as wholesale prices. When the agency is a zero-profit entity, the market equilibrium price is an increasing function of the Herfindahl index of the productivities. This result is extended to alternative situation in terms of objective and cost structure of the agency. In mixed resource-based industries, private provision of the resource is also available. Strong firms (with high productivity) may have an incentive to share the common resource with the weak ones and then to reduce the use of the private resource. The misrevelation of productivities is an essential issue in this public good context. It is proved here that productivities are underevaluated in the common resource case and overevaluated in the private case.
    Keywords: oligopoly, commons, Lindahl prices, misreporting.
    JEL: C72 D43 H41
    Date: 2022
  16. By: Foucart, Renaud (Lancaster University); Friedrichsen, Jana (HU Berlin)
    Abstract: We study a game in which two firms compete in quality to serve a market consisting of consumers with different initial consideration sets. If both firms invest below a certain threshold, they only compete for those consumers already aware of their existence. Above this threshold, a firm is visible to all and the highest investment attracts all consumers. On the one hand, the existence of initially captive consumers introduces an anti-competitive element: holding fixed the behavior of its rival, a firm with a larger captive segment enjoys a higher payoff from not investing at all. On the other hand, the fact that a firm’s initially captive consumers can still be attracted by very high quality introduces a pro-competitive element: a high investment becomes more profitable for the underdog when the captive segment of the dominant firm increases. The share of initially captive consumers therefore has a non-monotonic effect on the investment levels of both firms and on consumer surplus. We relate our findings to competition cases in digital markets.
    Keywords: consideration set; regulation; all-pay auction; endogenous prize; digital markets;
    JEL: D04
    Date: 2021–01–12
  17. By: Alec Brandon; Christopher Clapp; John List; Robert Metcalfe; Michael Price
    Abstract: Smart-home technologies have been heralded as an important way to increase energy conservation. While in vitro engineering estimates provide broad optimism, little has been done to explore whether such estimates scale beyond the lab. We estimate the causal impact of smart thermostats on energy use via two novel framed field experiments in which a random subset of treated households have a smart thermostat installed in their home. Examining 18 months of associated high-frequency data on household energy consumption, yielding more than 16 million hourly electricity and daily natural gas observations, we find little evidence that smart thermostats have a statistically or economically significant effect on energy use. We explore potential mechanisms using almost four million observations of system events including human interactions with their smart thermostat. Results indicate that user behavior dampens energy savings and explains the discrepancy between estimates from engineering models, which assume a perfectly compliant subject, and actual households, who are occupied by users acting in accord with behavioral economists' conjectures. In this manner, our data document a keen threat to the scalability of new user-based technologies.
    Date: 2022
  18. By: Pöge, Felix (Boston University)
    Abstract: The relationship between competition and innovation is difficult to disentangle, as exogenous variation in market structure is rare. The 1952 breakup of Germany's leading chemical company, IG Farben, represents such a disruption. After the Second World War, the Allies occupying Germany imposed the breakup because of IG Farben's importance for the German war economy instead of standard antitrust concerns. In technology areas where the breakup reduced concentration, patenting increased strongly, driven by domestic firms unrelated to IG Farben. An analysis of patent texts shows that an increased propensity to patent does not drive the effect. Descriptively, IG Farben's successors increased their patenting activities as well, and their patenting specialized relative to the pre-breakup period. The results are consistent with a breakup-induced innovation increase by the IG Farben successors, which then spilled over to the wider chemical industry.
    Keywords: innovation, competition, merger, antitrust, IG Farben
    JEL: O31 L44 N44
    Date: 2022–08
  19. By: Ms. Elif C Arbatli Saxegaard; Ruchir Agarwal; Ms. Lesley Fisher; Xuehui Han
    Abstract: India’s recently announced privatization strategy can facilitate a change in the composition of the public sector balance sheet toward high-return public sector investments in infrastructure and human capital where there is a clear role for government, leaving commercially viable companies for the private sector. Against this background, this paper provides a description of the SOE sector in India, consider different criteria which can inform the scope and rationale for privatization. It also highlights takeaways from international experience with privatization, highlights the importance of improved governance and oversight of SOEs and showcases analytical tools that can help analyze risks from SOEs. While this paper focuses on India, the framework for SOEs developed in this paper can be used to evaluate SOEs policy options in other countries.
    Keywords: State-owned enterprises; Privatization; privatization strategy; policy option; privatization policy; privatization plan; privatization rent; Public enterprises; Fiscal risks; Public sector; Financial statements; Global; Central and Eastern Europe; Western Europe; Caribbean
    Date: 2022–08–26
  20. By: Fulton, Lewis PhD
    Abstract: Currently, hydrogen is used in California in only a few significant applications, with refining being the most dominant. However, hydrogen has the potential to be a major zero-carbon energy carrier across many applications, including transportation, buildings, and various industries. What would be required for this kind of scale-up? What is the potential for hydrogen in different sectors and in different parts of the state? How can this potential be realized? Scaling up the use of hydrogen will likely require strong policies because currently it is produced on a small scale and is therefore expensive. This brief covers basic concepts of how hydrogen could be used, and how much end-use demand potential there could be for different applications across transportation, buildings and industry; however, it should be noted that this brief does not consider hydrogen used within the electricity system). It also considers strategy to some degree – such as where the greatest efforts should be placed. It builds on research that is ongoing on UC campuses as well as other sources.
    Keywords: Engineering
    Date: 2022–09–01

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